Long bonds fall out of favor over worries about excessive govt debt

Yields on long-term debt, from Japan and Germany to Britain and France, rose on July 14 as growing concern over widening fiscal deficits dented demand.

- 

The yield on Japan's 30-year notes jumped the most in two months, and those on similar-maturity German bonds flirted with their loftiest levels in 14 years. For these countries, fiscal concerns are usurping central bank interest rate policies as the main factor to watch.

While the sell-off is less pronounced in the US, 30-year yields there still touched their highest in a month.

Japanese election largesse and US President Donald Trump's weekend tariff announcements were the immediate cause of the latest nudge higher. They tapped into deeper concerns about excessive government debt, fire hose spending, too many bonds coming to market, and inflation that is still much too sticky in developed markets around the world.

"Monetary policy has taken a backseat as primary policy focus, to be replaced by what is happening with budgets and national debts," said Mr. Benoit Anne, senior managing director and head of the market insights group of MFS Investment Management.

That is all well and good if investors are willing to finance it, Mr. Anne said, but past episodes have shown that investors can quickly develop "an acute case of fiscal profligacy scepticism".